small to medium sized business guide

The Small to Medium-Sized Business Guide to the CARES Act 

What Is the Coronavirus Aid, Relief and Economic Security (CARES) Act?

The Coronavirus Aid, Relief and Economical Security (CARES) Act is a multibillion dollar loan program for small businesses, including 501(c)(3) nonprofits and physician practices.

The CARES Act is an economic stimulus package, not a bailout. Its primary function is to assist small to medium-sized businesses by fueling them with capital and providing other forms of economic relief such as debt forgiveness.

The concept behind the CARES Act is the same as watering a tree from its roots and not its leaves. The CARES Act is designed to help ALL small and medium-sized businesses remain viable, keep their workers employed and paid in an effort to stabilize our economy and promote long-term growth.

What Does the CARES Act Mean to Your Business?

It doesn’t matter if your company is struggling or successful, just about any small to medium-sized business may qualify for one or more benefits of the CARES Act. Continue reading to discover if your business is eligible and what the benefits and rules are.

 

Which businesses and other entities are eligible to receive Title I, Title IV and Other Federal Stimulus Programs? 

  • Additional Temporary USD Swap Lines
  • Capital and Liquidity Relief
  • Commercial Paper Funding Facility
  • Discount Window Access and Reserve Requirement
  • Financial Regulatory Guidance on Borrowers
  • Medium-sized Business and Main Street Support
  • Money Market Mutual Fund Liquidity Facility
  • Primary Dealer Credit Facility
  • Primary Market Corporate Credit Facility
  • Secondary Market Corporate Credit Facility
  • Small Business/SBA Support
  • Specific Industry Support
  • State, Territory, Tribal and Municipal Relief
  • Term Asset-backed Securities Lending Facility

Who May Benefit From the CARES Act Small Business Interruption Loans?

  • Sole proprietors or independent contractors and eligible self-employed individuals
  • Small businesses or other concerns that have 500 or fewer employees (full-time or part-time); or the applicable size standard in number of employees as provided by SBA, if higher
  • Affiliation waived for three types of businesses
    • Businesses with fewer than 500 employees at one location in the accommodation and food service industry
    • Businesses that operate franchises
    • Businesses that receive assistance from the Small Business Investment Corporation

 

What Are Small or Other Business Interruption Loans?

Here are two SBA loan programs created to help businesses keep their workforce employed during the COVID-19 crises.

  • Paycheck Protection Program (PPP) under CARES Act and SBA 7(A)
    • Eligible businesses and entities (sole proprietors, independent contractors, and self-employed persons with 500 or fewer employees)
    • SBA affiliation rules apply
    • Borrowing amounts (up to $10 million)
    • Loan forgiveness
  • Economic Injury Disaster Loan (EIDL) under SBA 7(B) lending program

 

Affiliation Rules:

  • Become important when SBA is deciding whether a business’s affiliations preclude them from being considered “small”
  • Exist when one business controls or has the power to control another through ownership, management or other relationships or interactions between the parties
  • Not waived for nonprofits and portfolio companies of private equity-backed and venture capital-backed businesses
  • Highly specific fact-based inquiry

 

What Are the Affiliation Rules?

The following four rules govern the loan process.

  • Affiliation through control
    • Deemed to be in control of all entities in which you own more than 50 percent of the concern’s voting stock
    • Minority shareholder deemed to be in control by SBA if he/she has the right to appoint board members with veto rights
  • Affiliation through common management
    • If officers, directors, managing members or general partners of a concern control the BOD and/or the management of another business concern
  • Affiliation through contract of economic dependence
    • Loan applicant derived more than 85 percent of its receipts over the previous three fiscal years from a contractual relationship with the other contract restricts the loan applicant from selling the same type of products or services to another purchaser
  • SBA may waive affiliation if loan applicant’s contract does not provide control to the other party

 

What Are Borrowing Amounts?

The size and length of loans vary and are determined by payroll costs and business start date.

  • Intended to cover eight weeks of payroll expenses and any additional amounts for making payments towards debt
  • Maximum borrowing amount = $10 million
  • Loan size determined in one of three ways:
    • In business between February 15, 2019, to June 30, 2019
    • Max loan is equal to 250 percent of your average monthly payroll costs during that time period
    • If your business employs seasonal workers, you can opt to choose March 1, 2019, as your time period start date.

 

What Is Loan Forgiveness?

This program provides loan forgiveness to small businesses by temporarily expanding the traditional SBA 7(a) loan program when they keep their employees on the payroll.

  • Payroll costs incurred during covered eight-week period
  • Reduced by laid-off employees
  • Reinstituted if employees rehired by June 30, 2020
  • Principal plus interest forgiven
  • Will not constitute cancellation of indebtedness income for federal tax purposes
  • Unforgiven portion pursuant to lender terms

 

Economic Injury Disaster Loan (EIDL)

The SBA’s Economic Injury Disaster Loan (EIDL) program provides economic support to small businesses to help them overcome the temporary loss of revenue due to COVID-19.

  • Up to $2 million, 30-year term at 3.75 percent (profit) or 2.75 percent (nonprofit)
  • Grant award of up to $10,000, approved in three days
  • If you apply for both, EIDL is subtracted from the amount forgiven under PPP
  • Cannot be used for the same purposes

 

We Are Here to Help

All of us at JAISIN Insurance Solutions hope this Business Guide outlining the recent CARES Act has given you a better understanding of the stimulus programs available to help small to medium-sized businesses like yours weather the coronavirus pandemic.

While the pandemic is top-of-mind right now, it’s important not to lose sight of the other safeguards you have in place to protect your business and personal property. Why not take this downtime to have an expert review your insurance coverage. (Understanding your coverage is key to surviving catastrophic events.)

Schedule your free policy review with one of our insurance specialists today.

Jason Bishara

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